Tgarch11 = function(x,cond.dist="norm",include.

mean=TRUE){
### Modified on June 14, 2014
# Estimation of TGARCH(1,1) model with Gaussian or Student-t innovations
Tx <- x
# Step 2: Initialize Model Parameters and Bounds:
if(include.mean){
Meanx = mean(Tx); Varx = var(Tx); S = 1e-6
if(cond.dist=="std"){
params = c(mu = Meanx, omega = 0.1*Varx, alpha = 0.1, gam1= 0.02, beta = 0.81,
shape=6)
lowerBounds = c(mu = -10*abs(Meanx), omega = S^2, alpha = S, gam1=S, beta = S,
shape=3)
upperBounds = c(mu = 10*abs(Meanx), omega = 100*Varx, alpha = 1-S, gam1 = 1-S,
beta = 1-S, shape=30)
}
else{
params = c(mu = Meanx, omega = 0.1*Varx, alpha = 0.1, gam1= 0.02, beta = 0.81)
lowerBounds = c(mu = -10*abs(Meanx), omega = S^2, alpha = S, gam1=S, beta = S)
upperBounds = c(mu = 10*abs(Meanx), omega = 10*Varx, alpha = 1-S, gam1 = 1-S, beta
= 1-S)
}
}
else{
Varx = var(Tx); S = 1e-6
if(cond.dist=="std"){
params = c(omega = 0.1*Varx, alpha = 0.1, gam1= 0.02, beta = 0.81, shape=6)
lowerBounds = c(omega = S^2, alpha = S, gam1=S, beta = S, shape=3)
upperBounds = c(omega = 100*Varx, alpha = 1-S, gam1 = 1-S, beta = 1-S, shape=30)
}
else{
params = c(omega = 0.1*Varx, alpha = 0.1, gam1= 0.02, beta = 0.81)
lowerBounds = c(omega = S^2, alpha = S, gam1=S, beta = S)
upperBounds = c(omega = 10*Varx, alpha = 1-S, gam1 = 1-S, beta = 1-S)
}
}
# Step 3: Set Conditional Distribution Function:
garchDist = function(z, hh, cond.dist, nu1) {
if(cond.dist=="std"){LL=dstd(x = z/hh, nu=nu1)/hh}
else{
LL=dnorm(x = z/hh)/hh }
LL
}
# Step 4: Compose log-Likelihood Function:
garchLLH = function(parm,Tx=x,cond.dist=cond.dist,include.mean=include.mean) {
mu = 0; ist = 0; shape=0
if(include.mean){mu=parm[1]; ist=1}
omega = parm[ist+1]; alpha = parm[ist+2]; gam1=parm[ist+3]; beta = parm[ist+4]
if(cond.dist=="std"){shape=parm[ist+5]}
z = (Tx-mu); Mean = mean(z^2)
zm1=c(0,z[-length(z)])
idx=seq(zm1)[zm1 < 0]; z1=rep(0,length(z)); z1[idx]=1
# Use Filter Representation:
e = omega + alpha * c(Mean, z[-length(z)]^2) + gam1*z1*c(Mean,z[-length(z)]^2)
h = filter(e, beta, "r", init = Mean)
hh = sqrt(abs(h))
llh = -sum(log(garchDist(z, hh, cond.dist, shape)))
llh }
# Step 5: Estimate Parameters and Compute Numerically Hessian:
fit = nlminb(start = params, objective =
garchLLH,Tx=Tx,include.mean=include.mean,cond.dist=cond.dist,
lower = lowerBounds, upper = upperBounds) ### control = list(trace=3))
epsilon = 0.0001 * fit$par
npar=length(params)
Hessian = matrix(0, ncol = npar, nrow = npar)
for (i in 1:npar) {
for (j in 1:npar) {
x1 = x2 = x3 = x4 = fit$par
x1[i] = x1[i] + epsilon[i]; x1[j] = x1[j] + epsilon[j]
x2[i] = x2[i] + epsilon[i]; x2[j] = x2[j] - epsilon[j]
x3[i] = x3[i] - epsilon[i]; x3[j] = x3[j] + epsilon[j]
x4[i] = x4[i] - epsilon[i]; x4[j] = x4[j] - epsilon[j]
Hessian[i, j] = (garchLLH(x1,Tx=Tx,include.mean=include.mean,cond.dist=cond.dist)
-garchLLH(x2,Tx=Tx,include.mean=include.mean,cond.dist=cond.dist)
-garchLLH(x3,Tx=Tx,include.mean=include.mean,cond.dist=cond.dist)

+garchLLH(x4,Tx=Tx,include.mean=include.mean,cond.dist=cond.dist))/
(4*epsilon[i]*epsilon[j])
}
}
cat("Log likelihood at MLEs: ","\n")
print(-garchLLH(fit$par,Tx=Tx,include.mean=include.mean,cond.dist=cond.dist))
cat("Conditional distribution used: ","\n")
cat(cond.dist,"\n")
# Step 6: Create and Print Summary Report:
se.coef = sqrt(diag(solve(Hessian)))
tval = fit$par/se.coef
matcoef = cbind(fit$par, se.coef, tval, 2*(1-pnorm(abs(tval))))
dimnames(matcoef) = list(names(tval), c(" Estimate",
" Std. Error", " t value", "Pr(>|t|)"))
cat("\nCoefficient(s):\n")
printCoefmat(matcoef, digits = 6, signif.stars = TRUE)
# compute output
est=fit$par
mu = 0; ist = 0
if(include.mean){mu = est[1]; ist=1}
omega = est[ist+1]; alpha = est[ist+2]; gam1=est[ist+3]; beta = est[ist+4]
z=(Tx-mu); Mean = mean(z^2)
zm1=c(0,z[-length(z)])
idx=seq(zm1)[zm1 < 0]; z1=rep(0,length(z)); z1[idx]=1
e = omega + alpha * c(Mean, z[-length(z)]^2) + gam1*z1*c(Mean,z[-length(z)]^2)
h = filter(e, beta, "r", init = Mean)
sigma.t = sqrt(abs(h))

Tgarch11 <- list(residuals = z, volatility = sigma.t, par=est)

}